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Economics consists of looking not merely at the immediate but at the longereffects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups
... The economic goal of any nation, as of any individual, is to get the greatest results with the least effort." - economist Henry HazlittNot only has the government and the Federal Reserve caused the financial crisis withexcessive money-printing, reckless spending, bailouts, and corporatism, but the governmentis fully responsible for the rampant unemployment we see in our country today.First, why does a firm or entrepreneur create a job at all? The ultimate reason is to realize aprofit, an overall economic gain, or to “makemoney.” Firms do not create jobs for pleasure. All businesses entail risk while seeking tocreate profits. Why does someone accept a job? Sure, to meetthe basic necessities of life – food, shelter,clothing, and health care when sick - but theindividual chooses to work ultimately for thesame reason – to make a profit and “makemoney.”Therefore both the employer and employee enter into a contract because they expect a mutual benefit. Employment is just like any other economic transaction – when you purchase a loaf of bread, you demonstrate your preference of the bread over the currency, and likewise thesupermarket prefers your currency over the bread. When one works for a firm, the firmobviously prefers to have the work completed versus not having hired anyone at all, and vice versa. Mutually beneficial transactions are the heart of any market economy.Regardless, the entrepreneur must still attempt to calculate if spending say $10 per hour for anew hire will create the desired profit margin, say just $1 per hour. However, it is not a simplecase of the worker deciding between $10 per hour for this firm, working another job, or not working at all. Consider:
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The firm has significant graduated corporate profit taxes to pay. Pennsylvania has the world's second-highest overall corporate tax rate at 41.5%.
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To pay the mandatory Social Security payroll tax, the worker has 6.2% removed frompaychecks. The employer pays a matching 6.2% that the employee never sees, resultingin a 12.4% flat tax.
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To pay the mandatory Medicare payroll tax, the worker has 1.45% removed frompaychecks which the employer matches for a 2.9% flat tax.
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The worker pays approximately 1-2% in local payroll taxes.
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To pay Pennsylvania state income taxes, a flat tax of 3.07% is removed from workers'paychecks.
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For federal and state unemployment “insurance” mandates, the firm pays anywherefrom 2-8% of pay.
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Employers pay mandated workman's compensation tax, and the national average isaround 1.5% of pay.
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The government forbids firms to pay lower than the federal minimum wage of $7.25per hour, which prices people out of jobs they might otherwise be able to fulfill.
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Next is the most dreaded tax of them all, the federal income tax. Let's be generous andassume that just 15% net of the employee's pay is withheld, although 20-30% is by nomeans uncommon.
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Lastly, to pay for the wild money-printing of the state, everyone pays the insidioushidden tax of inflation. In 2009, the inflation tax on savings in banks was estimated atroughly negative 8%.The above does not factor in significant property taxes, the 6% Pennsylvania sales tax ongoods and services, the 32-cent per gallon state tax on gasoline, the $1.35 per pack state tax oncigarettes, the $6.65 per gallon state tax on spirits, capital gains and taxes on interest, etc.So, when one works it all out, the firm- worker contract calculation is muchmore complicated than just $10 per hourand $1 profit to the firm. Since theinflation tax and the corporate profit taxadds up to about 50%, the firm really needs the employee to generate $2 perhour in profit for the firm. Meanwhile,the firm must pay roughly $11-$12 to employ the worker. So, the worker needs to generatearound $14 per hour to be worth the paycheck and make the firm profitable, but yet the worker only receives about $7 in take-home pay.Here are the solutions:
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Remove laws that threaten firms with frivolous lawsuits when firing workers. Firms would be more apt to hire new workers, and prearranged compensation for suddencontract termination could instead become the norm.
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Remove laws that prevent firms from hiring workers by mandating criteria outside of the only question that really matters – can they do the job?
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Remove the mandate for the employer to withhold income for all payroll taxes. Thisreduces transaction costs for the employer, and gives households more flexibility ineconomic planning.
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Permanently reduce - and preferably abolish - the 9.99% Pennsylvania state corporatetax so more firms will prefer our state to the rest of the nation.
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Remove the mandate for the employer to offer workman's compensation. Leave it upto the worker to decide if the 1.5% would be better off left in their paycheck.
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Make enrollment in the Social Security and Medicaid programs voluntary instead of mandatory. These schemes are woefully underfunded with $14 trillion in unfundedliabilities for Social Security and $85 trillion for Medicaid. Put in place a gradual phase-out plan so retirees can still receive the funds they contributed, while youngergenerations can escape. Remember, Social Security payments should be almostDOUBLE current levels since the government has been fudging the inflation numbersfor decades.
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